eResearch Technology rebrands as Q4 income climbs 14%

eResearchTechnology, the US-based supplier of centralised electrocardiograms, eClinical technology and electronic patient-reported outcomes services, has announced a corporate rebranding along with fourth-quarter results that saw net revenues grow by 4.0% and operating income by 13.9% year on year.

The results fell short of analysts’ estimates, though, and the company has warned of lower revenues in 2009 due to more cautious decision-making over clinical trials in a constrained economic climate.

Now reborn as ERT with “an entirely new image and character”, the company has sharpened its product positioning, overhauled its website and visual identity, and launched a new platform of clinical trial products and services under four sub-brands: Cardiac Safety Solutions, EDC Solutions (electronic data capture), ePRO Solutions (electronic patient-reported outcomes) and ERT Clinical Research Consulting Group.

According to the company, the rebranding followed “extensive” external and internal assessments. The message delivered was that both customers and employees “expect and receive a commitment from ERT that it will get the job done, and right” it noted. “ERT is a dynamic and positive organisation that is committed to redefining and setting new standards of how clinical trials are successfully conducted”.

President and chief executive officer Dr Michael McKelvey said the fresh identity was “a move forward in establishing the company as the most experienced and reliable partner in products and services for clinical trials”.

Fourth-quarter slowdown

For all its bullish stance, ERT acknowledged that growth was slowing. Net revenues for the fourth quarter were US$30.1 million compared with US$33.9 million in the previous quarter, when revenues were up by 41.5% year on year. And the 13.9% year-on-year increase in Q4 operating income to US$8.59 million was a step back from the third-quarter figure of US$10.5 million, nearly double operating income in the same quarter of 2007.

ERT also fell short of the analyst consensus, which had projected fourth-quarter revenues of US$34.2 million and earnings per share (EPS) of US$0.13. The company reported diluted net EPS of US$0.11 for Q4 versus US$0.10 in the year-before period.

Moreover, in the full year net revenues and EPS were either below or at the lower end of the revised financial guidance given by ERT at the third-quarter stage. The updated guidance narrowed the revenue forecast for 2008 to US$134-US$137 million while raising the projection for diluted earnings per share to US$0.47 to US$0.50.

As it was, net revenues for the year came in at US$133.1 million, 34.9% higher than in 2007, and diluted EPS were US$0.48, up by 65.5%.

Feeling the impact

In the fourth quarter ERT “began to feel the impact of the cautious and delayed decision-making that has marked our economy in general, and our industry in particular, in the past few months”, McKelvey noted, adding: “This was most evident in our Thorough QT business, which accounted for the majority of the quarter’s sequential revenue decline from the $33.9 million we reported in our September 2008 quarter.”

Thorough QT studies are cardiac safety trials that look at a drug’s impact on cardiac repolarisation by identifying and quantifying any prolongation of the QT/QTc interval. Last October ERT announced the completion of its 100th trial in this field, which has become an increasingly important component of drug development.

Despite these setbacks, McKelvey said, ERT was gratified with the increase in its gross margin from 52.6% to 57.3% for the fourth quarter. The company also recorded US$45.1 million in new bookings and a gross book-to-bill ratio of 1.5, both an improvement on the third quarter.

“As a whole, 2008 was very strong,” with record revenues, bookings and backlog, McKely commented. The operating income margin of 28.8% for the year was 630 basis points higher than in 2007, despite the costs incurred in the transfer of the acquired CCSS (Covance Cardiac Safety Services) operations to ERT’s US facility in Philadelphia.

Operating income for 2008 jumped 72.6% to US$38.4 million, which came on top of a 86.0% increase in 2007, and backlog for the year was 18.8% ahead, McKelvey pointed out.

“In 2009 we anticipate lower revenues due mostly to delays in Thorough QT bookings and trial starts and also as a result of a higher proportion of our bookings being in longer-to-recognize Phase III studies,” he warned. Despite these challenges, though, the company’s “priorities are straightforward”, McKelvey believes.

In the first place, it sees “opportunities to increase market share by continuing to win new and expanded exclusive or near-exclusive long-term enterprise contracts with large clients – including some with which we had very little business in the past”.

Secondly, ERT will focus on increasing industry penetration of centralised electrocardiograms (ECGs) by focusing on how centralisation can reduce clients’ costs. Thirdly, ERT plans to continue positioning itself for the future by expanding its sales and marketing organisation and its internal systems infrastructure.

“We believe that in difficult economic and financial times innovative market leaders can prosper and position themselves for increased growth in the future,” McKelvey stated.

2009 guidance

ERT issued financial guidance for the first quarter of 2009 and full year that “reflects the anticipated delays in starts and awards of new Thorough QT studies, the cautious spending decisions of many of our clients, and a slight return to growth of the economy in the second half of 2009”.

In the first quarter, net revenues are expected to be in the range of US$21.0 million to US$24.0 million and net earnings per diluted share between $0.01 and $0.04. For the full year, ERT is projecting net revenues of US$105-US$125 million and diluted EPS of US$0.25-US$0.43.